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New Ratings For A Knowledge Economy

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Which countries lead the global knowledge economy? At least one academic suggests that current assessments of a country’s knowledge base are too narrow and reliant on averages. Historically, evaluations used a binary measure focusing on quantity of education and average scholastic performance.

In research to be presented in April at INSEAD, Kai Chan, a distinguished fellow at INSEAD Abu Dhabi, argues that its brightest talents—not its average capabilities—determine the knowledge capacity of a country. He has developed the Intellectual Capital Index (ICI), which incorporates factors like creativity and the ability to attract talent. “It is a fresh perspective that recognizes that it is the right tail of the distribution, rather than the average, that expands the frontier,” he tells Global Finance.

The ICI considers six aspects that influence knowledge acquisition/production: (1) quantity of education, (2) quality of education, (3) average educational skills, (4) elite educational skills, (5) creativity and complexity and (6) attractiveness and openness to talent. There are 24 indicators spanning the life cycle of talent, and according to Chan the index is a measure of a country’s stock of “smarts.”

Using his formula to rank countries with the best intellectual ecosystem, Chan found the United States comes out decisively on top. Its dominant position is largely due to its score on quality of education. Home to a majority of the world’s leading higher-learning institutions, the US has earned an outsized number of Nobel Prizes and is judged a magnet for talent. Silicon Valley, Wall Street and Cambridge are world-leading centers for IT/entrepreneurship, finance and research/higher education, respectively.

The results are a snapshot in time, and outcomes of policymaking decisions could see countries rising or falling at any given moment.

Still, as the ICI adopts a more expansive measure, it is likely to garner significant attention.